Review and Outlook of Global, Nigeria Markets –Week Ended Mar 15, 2019

Global Equities Market: Market Sentiment Still Soft Over US-China Trade Talks and Delay on Brexit
Despite progress in the ongoing trade talks between the US and China, the meeting between President Donald Trump and President Xi Jinping will not hold at the end of March 2019 as previously scheduled. This creates a bit of uncertainty and it means that the market will have to wait till April 2019 when China’s Vice Premier Liu and U.S. Trade Representative Robert Lighthizer meet for clarity to emerge. Also, after Theresa May’s Brexit deal was rejected at the British parliament, she later won the backing of the U.K. Parliament to delay Brexit. We note that the proposed extension must be approved by every member country of the EU to come into effect. However, the delay in Brexit provides a sense of calm to the markets, especially after members of the parliament voted against a second referendum. We suspect that until there is clarity on the extension of Brexit, market sentiments would remain weak due to uncertainty.

Following the trends discussed above, performance across the developed market was bullish. In the US markets, the S&P 500 and the NASDAQ closed the week higher, up 2.6% and 3.7% W-o-W respectively, while UK’s FTSE All Share gained 1.8% W-o-W. Furthermore, France's CAC 40 (3.2% W-o- W), Germany's XETRA DAX (2.0% W-o-W), Hong Kong’s Hang Seng (2.8% W-o-W) and Japan’s Nikkei 225 (2.0% W-o-W) all advanced during the week.

Across BRICS, performance was largely bullish as all indices we track trended northwards. Brazil’s Ibovespa recorded the largest gain, up 4.0% W-o-W, followed by India’s BSE Sens and China’s Shanghai Composite with gains of 3.7% and 1.7% W-o-W respectively. Similarly, South Africa’s FTSE/JSE All Share advanced by 1.3% W-o-W while Russia’s RTS closed the week with a gain of 0.8%.

In Africa, performance was bearish as 5 out of 6 markets under our coverage recorded losses W-o-W. Nigeria’s All-Share Index recorded the largest loss, down 2.4% W-o-W followed by Ghana’s GSE Composite (-0.9% W-o-W) and Kenya’s NSE-20 (-0.7% W-o-W). Similarly, Morocco’s Casablanca MASI and Mauritius’ SEMDEX closed the week with losses of 0.6% and 0.4% W-o-W respectively. On the flip side, Egypt’s EGX30 was the lone gainer, up 0.6% W-o-W.

In Asia and the Middle East, there was a total reversal from last week’s performance as all markets recorded losses W-o-W. Qatar's DSM 20 index led the laggards, declining 1.9% W-o-W, followed by UAE's ADX General Index (-1.7% W-o-W), Saudi Arabia's Tadawul ASI (-1.2% W-o-W), Thailand’s SET index (-0.2% W-o-W) and Turkey's BIST 100 (-0.1% W-o-W).

Domestic Equities Market: Local Bourse Posts Bearish Performance… ASI down 2.4% W-o-W
Bearish sentiments dragged the performance of the All Share Index (ASI) this week despite positive earnings releases of some listed companies. We observed that profit taking and sell pressures persisted across most trading sessions as the benchmark index posted losses on 4 of the 5 trading days. Consequently, the ASI declined 2.4% W-o-W to settle at 31,142.72 points and YTD return worsened to -0.9%, while market capitalisation shed N291.5bn to close at N11.6tn. Similarly, trading activity weakened as average volume and value traded fell 13.7% and 2.9% W-o-W to 222.2m units and N2.7bn respectively. The top traded stocks by volume were FBNH (169.9m units), ZENITH (163.1m units) and DIAMONDBK (131.2m units) while ZENITH (N3.7bn), FBNH (N1.4bn) and NESTLE (N1.3bn) topped trades by value.

Trading activities for the week started off on a negative note on Monday as the ASI dipped 0.9% due to profit taking in ZENITH, NESTLE and STERLING. On Tuesday, sell-offs in GUARANTY, INTBREW and DANGCEM led to a further loss of 1.0% for the ASI. However, by Wednesday, bargain hunting in NESTLE and GUARANTY upturned market performance and the benchmark index gained 0.2%. Nonetheless, bearish sentiments returned to the domestic bourse as the ASI declined 0.5% and 0.2% on Thursday and Friday respectively following sell-offs in the stocks that appreciated earlier in the week.

Performance across sectors was largely bearish as 4 of 5 indices under our coverage declined W-o-W. The Oil & Gas index emerged the lone gainer, up 0.1% W-o-W due to sustained buying interest in OANDO (+2.6%). On the flip side, the Banking index declined the most, down 6.1% W-o-W due to sell pressures in GUARANTY (-5.1%) and ZENITH (-11.8%) while the Industrial index trailed, down 1.1% W-o-W due to price depreciation in DANGCEM (-2.6%). Similarly, the Insurance and Consumer Goods indices shed 0.8% and 0.4% W-o-W respectively due to sell-offs in CORNEST (-8.7%), GUINNESS (-1.4%) and INTBREW (-10.9%).

Investor sentiment as measured by market breadth (advance/decline ratio) weakened to 0.4x from 0.6x in the previous week, as 16 stocks appreciated compared with 43 stocks that declined. The best performing stocks were CAP (+10.0%), ROYALEX (+9.4%) and CADBURY (+9.1%) while AFRIPRUD (-20.8%), FCMB (-12.7%) and ZENITH (-11.8%) underperformed. Consequent on the losses recorded on four trading sessions during the week, we expect to see some bargain hunting in early trades next week, supported by positive earnings release on some counters. Nonetheless, given the paucity of foreign portfolio participation in the local bourse, we anticipate that the lingering bearish sentiments would drive a negative close.

Foreign Exchange Market: Reserves' Still on the Rise
The naira remained broadly stable across all segments of the market following the sustained increase in the foreign reserves, up c.US$400m W-o-W to US$43.0bn (14-03-2018) largely driven by foreign portfolio inflows into the fixed income market.

In terms of the direction of rates, the Naira in the parallel market stood flat at N360.00/US$1.00 while the CBN spot rate depreciated by 5kobo to close at N306.95/US$1.00. Also, at the Investors and Exporters Window (I&E), the NAFEX rate depreciated 28 kobo W-o-W to N360.18/US$1.00 from N360.46/US$1.00 in the prior week. Activity level in the market declined as total turnover fell to US$1.7bn, down 58.0% W-o-W from US$4.1bn in the prior week. However, total subscriptions in the FMDQ OTC futures market increased 8.8% W-o-W to US$7.3bn from US$6.7bn as the February 2020 and January 2020 received the most buying interest, up 39.8% and 31.9% W-o-W respectively.

In line with historical trends, we expect the Apex bank to sustain interventions in the FX market to maintain exchange rate stability.

Money Market: Significant Interest Witnessed on Long Tenor Instrument at PMA
This week, the Central Bank of Nigeria (CBN) held the first Primary Market Auction (PMA) for the month of March. The auction was for instruments across three tenors (91-day, 182-day, and 364-day) on Wednesday. Also, the CBN held an OMO auction on Thursday for only the 91-day tenor, given maturities worth N215.9bn (both OMO and T-bills) that hit the system on the same day.

For the Treasury Bills’ PMA, investor interest was upbeat as all tenors were oversubscribed with bids-offers settling at 2.87x, 3.32x and 7.67x for the 91-day (Offer – N5bn, Subscription – N14.4bn, Stop rate – 10.75%), 182-day (Offer – N14.0bn, Subscription – N46.5bn, Stop rate – 12.5%) and 364-day (Offer – N70.5bn, Subscription – N539.7bn, Stop rate – 12.845%) instruments respectively. We believe that the relatively higher-level oversubscription on the long tenor instrument was driven by an absence of a long tenor OMO issuance in the money market over the last two weeks.

In the money market, rates - Open Buy Back (OBB) and Overnight (OVN)– undulated through the week, increasing by the close of the first trading day to settle at 10.8% and 11.6% respectively, before declining to 9.4% and 10.0% by mid-week and increasing to 11.17% and 11.67% by the close of the week. Hence, the OBB and OVN rates were up 2.0ppts apiece compared to prior week’s close of 9.2% and 10.1% respectively. In the secondary market, we observed buying interest across all tenors which drove a bullish performance on the Treasury bills yield curve as average yield declined 1.12% to close at 12.78% from 13.90% posted in the previous week.

Next week, we expect system liquidity to be lifted by the impact of maturities worth N169.4bn expected on the 21st of March. Consequently, we expect the CBN to hold OMO auction, in line with trend, to keep system liquidity in check.

Bond Market: Sovereign Bonds Yields Remain Attractive
The average ask-yield on Sovereign naira bonds pared further in the week, declining by 6bps to settle at 14.3% as investors continue to take position in the still attractively priced instruments. The direction of activities in the secondary market this week are in line with our expectations for the market over the near-term. We expect that yields would decline as position taking from investors intensify in the face of attractive yields and the depressed equities market. The Debt Management Office (DMO) is scheduled to hold the last primary market auction for the first quarter on the 27th of March 2019, when the FGN APR 2023 and FGN FEB 2028 instruments will be auctioned through re-openings.

The SSA Sovereign Eurobonds market was generally bullish, with yield declines recorded across all bonds in the market. Consequently, the average ask-yield declined by 13bps to settle at 7.1%. The largest decline was recorded on the Republic of Ghana bond, which recorded a yield decline of 31bps to settle at 7.2%. We believe this trend in the market is due to improving risk profile of countries across emerging and frontier markets. Nigeria Sovereign Eurobonds recorded an Ask-yield decline of 0.27ppts to settle the average across the eleven outstanding bonds at 6.7%. We expect this trend to persist over the short-term, although at a slower pace.

In the corporate Eurobonds space, the average yield across all bonds declined by 12bps to settle at 7.3%. There were yield declines across all bonds save for the Diamond Bank May 2019 (1.01ppts), and Seplat Petroleum 2023 which traded flat while the largest decline was recorded on the Zenith 2019 bond (0.75ppts), which matures on the 22nd of March 2019. In line with our expectations, investors have continued to take position in the attractively priced corporate Eurobonds, as fears regarding Frontier and EM countries have been suppressed by yield seeking imperative. We expect this to persist in the coming week, with the pace slowing as yield differential on a risk adjusted basis narrows.